The Digital Markets Act - An overview of practical aspects and recent developments
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Digital services, in particular online platforms, are playing an increasingly important role in the Single Market as they allow marketers to reach consumers across the European Union (EU). Cross-border trade is becoming easier and easier due to the increasing presence of online platforms. However, this does not mean that this is without risks for competition in the EU’s Single Market that the European Union is trying to adapt to the digital age.
These digital services, which are characterised by network effects or extreme economies of scale, risk jeopardising the fairness of business relationships between the platforms offering such services. There was a real concentration of power and a perceived lack of legislative (competition) approach. This was the reason the EU Commission opted for the ex-ante approach in Regulation 2022/1925 on Contestable and Fair Markets in the Digital Sector (otherwise known as Digital Markets Act, hereinafter referred to as “DMA”).
The DMA was finally adopted by the European Parliament and the Council of the European Union on 14 September 2022 and entered into force on 1 November 2022. On 2 May 2023, most of the DMA provisions became applicable.
- RATIONALE OF THE DMA
According to Margrethe Vestager, Executive Vice-President of the European Commission and chairing the European Commissioners’ Group for A Europe fit for the Digital Age, Europe has come to a point where action is needed. A point where the power of digital companies “:...threatens our freedoms, our opportunities, even our democracy”.1
As Europe is at the dawn of a new digital era, the DMA aims to modernise the European single market. It provides for ex-ante obligations that prohibit and impose certain behaviours before regulators even have evidence of actual harm in the digital market.
The Regulation applies to all types of digital economic activity in the European Union, meaning it covers not only companies operating within the EU, but also multinational companies. Following this reasoning, on 6 September 2023, the European Commission designated 22 core platform services provided by the following six gatekeeper companies: Meta, Alphabet, Amazon, ByteDance, Apple and Microsoft.
The designated gatekeepers have six months from the date of their designation to comply with the new obligations under the DMA, that is until 6 March 2024, by which date these six companies must: (1) comply with the obligations and restrictions set out in the Regulation; (2) submit a detailed report setting out the measures taken to comply with the Regulation; and (3) submit an audit to the European Commission setting out the techniques used for customer profiling.
- THE QUALIFICATION AS GATEKEEPER
The DMA will be the first piece of legislation at EU level to regulate the business activities of gatekeepers, that is large service platforms that have a significant impact on the internal market.
Articles 2 and 3 of the DMA contain the elements that need to be present for a company to be defined as a gatekeeper. According to Article 2, gatekeepers are undertakings (ie, entities engaged in an economic activity according to well established EU case law) that provide a “core platform service” and which are designated as gatekeepers under Article 3 of the DMA. Article 2(2) of the DMA provides an exhaustive list of the core platform services.2
According to Article 3(1) of the DMA, a company shall be designated as a gatekeeper if the following three cumulative criteria are met:
- first, the company must have a significant impact on the internal market;
- second, the company must provide a core platform service, which is an important gateway for business users to reach end users; and
- third, the company must enjoy an entrenched and durable position, in its operations, or it is foreseeable that it will enjoy such a position in the near future.
As regards the first condition, this is presumed to be met when the company has achieved a turnover in the European Union of €7.5 billion or more in each of the last three financial years. Or, alternatively, the company has reached an equivalent fair market value of at least €75 billion in the last financial year, and it provides the same core platform service in at least three EU Member States. This threshold is very high and difficult to reach, which means that only the big players can qualify as gatekeepers in the sense of the DMA.
The second criterion is presumed to be met where the relevant company has more than 45 million monthly active end-users established or located in the European Union and more than 10,000 yearly active business users established in the European Union in the last financial year. The notion of “monthly active end users” means the average number of monthly active end users throughout the largest part of the last financial year.
The third condition is presumed to be met if the user number thresholds above have been met in each of the last three financial years.
In terms of territorial scope, the DMA applies whenever a gatekeeper provides core platform services to EU-based business customers or end users, regardless of whether the gatekeeper itself is based in the European Union.3
Article 3(3) of the DMA stipulates that if all of the quantitative presumptions listed above are met, a company has to notify the EU Commission without delay and in any event within two months after the thresholds are met. In its notification the potential gatekeeper can provide arguments to demonstrate that in the specific circumstances in which the relevant core platform service operates, the qualitative requirements for being designated as a gatekeeper are not met.
III. ENFORCEMENT OF OBLIGATIONS UNDER THE DMA
If a company qualifies as a gatekeeper, a wide number of obligations are imposed on it under Articles 5, 6 and 7 of the DMA. These vary depending on the core platform services listed by the EU Commission in its designation decision. These obligations deal with issues such as self-preferencing, free access to app stores, use of big data and merger control (to name just a few).
While it is the gatekeepers that are responsible to comply with the obligations under the DMA (Article 81 of the DMA), it is the European Commission that monitors compliance and enforces compliance if gatekeepers are non-compliant with those obligations. The Directorate responsible within the European Commission is Directorate-General for Competition (DG COMP), supported by the Directorate-General
for Communications Networks, Content and Technology (DG CONNECT). In addition, the European Commission will work closely with the national competition authorities in the Member States, which can provide evidence and support to the European Commission.
Fines are the main tool to ensure compliance with the regulatory content (ie obligations and procedural rules) stemming from the DMA. The European Commission can impose fines and periodic penalty payments depending on the nature of a gatekeeper’s offence. These are:
- One-off fines: In a non-compliance decision, a fine of 10% of the total worldwide turnover in the previous financial year may be imposed for wilful or negligent non-compliance with certain requirements, and up to 20% if a gatekeeper is found to have committed a repeated infringement. A lower fine of 1% of total worldwide turnover may be imposed for breaches of procedural rules (see Article 30 of the DMA).
- Periodic penalty payments: A decision imposing periodic penalty payments on companies, including gatekeepers and associations of companies, may be used to enforce compliance with certain measures and decisions. Such payments may not exceed 5% of the average daily worldwide turnover of the preceding financial day per year, calculated from the date specified in the decision (see Article 31 of the DMA).
If the gatekeepers have complied with the obligation that was intended when the fine was imposed, the European Commission may subsequently reduce the final amount to be paid to an amount lower than that originally envisaged. The European Union’s Court of Justice may also cancel, reduce, or increase the fine or periodic penalty payments.
Finally, it should also be noted that private enforcement is not specifically dealt with in the DMA. However, Articles 42 and 53 of the DMA enable consumers to enforce their rights in relation to the obligations imposed on gatekeepers under the DMA through representative actions in accordance with the Representative Actions Directive (Directive 2020/1828).
IV. LEGAL CHALLENGES SO FAR
Companies that have been designated as gatekeepers under the DMA have the possibility to challenge such a decision before the European Union’s General Court. Of the six companies that have been designated as gatekeepers, three (to the author’s knowledge) did exactly that when they found out of the European Commission’s decision back in September 2023:
- Apple (cases T-1079/23 & T-1080/23)
Apple’s appeal includes efforts to re-classify its core platform services, particularly with regards to its operating systems (iOS, iPadOS, macOS, watchOS, and tvOS), App Store, and Safari. Apple argues that these services should be segregated according to their device-specific functionalities. Apple argues that each version of its operating systems serves distinct purposes for both end users and business users.
Furthermore, with regard to iMessage, Apple challenges its designation as a core platform service. In particular, Apple is arguing that iMessage does not fit the definition of a number-independent interpersonal communication service or a gateway for business users to reach end users under the DMA. Accordingly, Apple believes that iMessage is not tailored for business-to-consumer communication, hence, it does not meet the criteria outlined in Article 3(1)(b) of the DMA as a “medium for businesses to connect with end users”. Apple further argues that iMessage is provided for free and does not directly intermediate between business and end users.
- Meta (case T-1078/23)
In its appeal of 15 November 2023, Meta stated that it disagreed with the European Commission’s decision to bring its Messenger and Marketplace services under the DMA.
- With regard to its Marketplace service, the company argues that it is not being used by Meta to target new consumers, but that it is a platform for putting people in touch with each other.
- As far as Messenger is concerned, Meta argues that this messaging service is not independent and that it is a feature of its social network, Facebook. Meta seems to want to avoid the measure, which consists of promoting interoperability between the messaging systems of the various gatekeepers designated by the DMA. In concrete terms, with this measure, a user of WhatsApp and Messenger or Apple’s iMessage function will eventually have to be able to communicate with competing services such as Signal.
The inclusion of Facebook, WhatsApp or Instagram was apparently not contested. “This action seeks to clarify specific points of law regarding the designations of Messenger and Marketplace under the DMA”, Meta said in a statement. “It in no way alters our commitment to comply with the DMA and we will continue to work constructively with the European Commission”.
C. TikTok (case T-1077/23)
Social network TikTok, a subsidiary of the ByteDance Group, followed the steps of Meta and Apple and challenged its categorisation as a “gatekeeper” by the DMA on 16 November 2023. TikTok said its categorisation threatens to strengthen the power of dominant technology companies as it “could hinder the company’s ability to develop”. TikTok sees itself as an emerging player that could challenge the dominant position of the large US platforms.
Further it is disputing its designation in the “core platform service” category, suggesting it is wrongly classified based on its content-oriented nature. According to TikTok, its core function is to simply allow users to view short videos on the platform, rather than connecting the end users with each other.
V. CONCLUDING REMARKS
To conclude, the legal challenges relating to the adoption of the DMA have brought to light significant concerns from major tech companies Meta, Apple and TikTok. While these challenges vary in nature, overall, they highlight the complex web of issues surrounding the regulation of digital markets.
Indeed, all three claimants already reveal fundamental tensions in the parallel application of the DMA and EU competition law beyond the internal issues of DMA interpretation. Despite the European Commission’s insistence – including in the designation decisions – that the concepts of the DMA and its enforcement are separate and independent from competition law precedents, the EU courts in Luxembourg might not agree that the DMA should be applied in isolation.
Ultimately, in answering these legal challenges, the European Union’s General Court (and ultimately the Court of Justice of the European Union) will set important precedents for the other gatekeepers and influence the development of the DMA in the coming years. It will be important to strike a balance between promoting competition, protecting consumer interests, and encouraging digital innovation.
* Tom S Pick: Partner, Fieldfisher LLP, Brussels. Britt Gerritsen: Associate, Fieldfisher LLP, Brussels.
1 European Commission, “Speech by Executive Vice-President Margrethe Vestager: Building Trust in Technology” https:// ec.europa.eu/commission/presscorner/detail/en/speech_20_3031>.
2 These are: (a) online intermediation services; (b) online search engines; (c) online social networking services; (d) video-sharing platform services; (e) number-independent interpersonal communications services; (f) operating systems; (g) web browsers; (h) virtual assistants; (i) cloud computing services; (j) online advertising services, including any advertising networks, advertising exchanges and any other advertising intermediation services, provided by an undertaking that provides any of the core platform services listed in points (a) to (i).
3 Regulation 2022/1925 on Contestable and Fair Markets in the Digital Sector (EU), Art 1(2).